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Rlf - Rolfes - Acquisition Of Triangle Solvents

Release Date: 30/10/2008 12:00:04      Code(s): RLF
RLF - Rolfes - Acquisition Of Triangle Solvents                                 
ROLFES TECHNOLOGY HOLDINGS LIMITED                                              
(Registration number 2000/002715/06)                                            
Share Code: RLF & ISIN: ZAE000096202                                            
("Rolfes" or "the Company")                                                     
ACQUISITION OF TRIANGLE SOLVENTS                                                
1.   Introduction                                                               
PSG Capital is authorised to announce that with effect from 1 July 2008     
    ("the effective date"), Rolfes Chemicals (Pty) Limited ("Rolfes             
    Chemicals"), a wholly owned subsidiary of Rolfes, acquired the entire       
    issued share capital of New Heights 390 (Pty) Limited trading as Triangle   
Solvents ("Triangle Solvents"), for a maximum consideration of R60 million  
    payable in cash ("the Transaction").                                        
2.   Background to Triangle Solvents                                            
    Triangle Solvents was formed during 2001 primarily to supply quality        
solvents to the Gauteng market and has since become a major distributor and 
    reseller of solvents, waxes and creosotes primarily in drums and smaller    
    containers. Triangle Solvents is also a leading blender and supplier of     
    paint thinners with over 1500 active and loyal customers primarily in       
Gauteng, but also with customers in the Free State, Mpumalanga and Eastern  
    Cape. A new export division has been established during the year with       
    regular sales to Mauritius and African countries. The business`s products   
    are also supplied to smaller distributors who service areas throughout      
South Africa. Cyril Raymond Gebhardt, the sole owner and seller of Triangle 
    Solvents ("the Seller"), has longstanding relationships with the suppliers  
    of Triangle Solvents` products (being Sasol, Engen and BP) and these key    
    supply relationships and arrangements will continue after the conclusion of 
the Transaction.                                                            
3.   Rationale for the Transaction                                              
    Rolfes Chemicals is currently involved in the manufacturing of resins, the  
    trading of bulk solvent and lacquer thinners, as well as, limited           
distribution of speciality chemicals. The acquisition of Triangle Solvents  
    will allow Rolfes Chemicals to enter the large reseller market for          
    solvents, lacquer thinners, waxes and black products (creosotes) and will   
    also provide a competitive and large distribution platform to aggressively  
grow its speciality chemicals business. Furthermore, it is the firm         
    intention of Rolfes Chemicals to expand the business of Triangle Solvents   
    into other areas of the country where Triangle Solvents does not currently  
    operate, ie. Kwazulu Natal and the Western Cape.                            
4.   Details pertaining to the key terms and funding of the Transaction         
4.1  On 29 October 2008, Rolfes, Rolfes Chemicals, Triangle Solvents and the    
    Seller entered into a Sale of Shares Agreement in terms of which Rolfes     
    Chemicals acquired the entire issued share capital of Triangle Solvents     
from the Seller, from the effective date, for a maximum consideration of    
    R60 million ("the Purchase Consideration"), payable in cash.                
4.2  The key terms of the Purchase Consideration are as follows:                
    4.2.1     The Purchase Consideration will be calculated as the audited      
profit after tax ("PAT") of Triangle Solvents for the financial   
              year ending 30 June 2009 multiplied by a factor of five, limited  
              to a minimum consideration of R20 million and a maximum           
              consideration of R60 million.                                     
4.2.2     The Purchase Consideration will be adjusted downwards (not        
              upwards) on a pro rata basis if the PAT for the year ended 30     
              June 2010 is less than the PAT for the year ended 30 June 2009    
              plus a growth factor of 30%.                                      
4.2.3     The Purchase Consideration will be paid in cash as follows and on 
              the following dates:                                              
              a)   The first payment, on the closing date of the transaction    
                   (the date when all the suspensive conditions have been       
fulfilled) totalling an amount of R14 million.               
              B)   The second payment, on 30 September 2009 (subject to the     
                   audit of the PAT of Triangle Solvents for the year ending 30 
                   June 2009 being completed) calculated as to 60% of the       
Purchase Consideration as determined in terms of point 4.2.1 
                   above, less the first payment of R14 million.                
              c)   The third payment, on 30 September 2010 (subject to the      
                   audit of the PAT of Triangle Solvents for the year ending 30 
June 2010 being completed) based on the Purchase             
                   Consideration as potentially adjusted downwards and          
                   calculated in terms of point 4.2.2 above, less the first and 
                   second payments.                                             
d)   The payment structure provides for claw back provisions in   
                   the event of excess payments.                                
                                                                                
    4.2.4     The second and third payments due to the Seller will not attract  
any interest from the effective date to the date of payment.      
              Furthermore, in the event of any claw back of any payments made   
              by Rolfes Chemicals as a result of the payment formula used, the  
              Seller will be responsible in his personal capacity for the       
repayment of any such claw back payable, including interest       
              thereon calculated at the prime overdraft rate.                   
    4.2.5     The Transaction will be funded by Rolfes Chemicals by way of      
              external debt and from internal resources.                        
5.   Warranties                                                                 
    Warranties and indemnities normal to a transaction of this nature are       
    included in the Sale of Shares Agreement entered into between the parties.  
6.   Suspensive conditions of the Transaction                                   
6.1  As at the date of this announcement, the Transaction is subject to the     
    fulfilment of the following suspensive conditions on or before 30 November  
    2008:                                                                       
    6.1.1     The conclusion of a two year employment and three year restraint  
agreement with Cyril Raymond Gebhardt, the Seller, and five other 
              key employees of Triangle Solvents;                               
    6.1.2     The approval of the transaction by the Board of Directors of      
              Rolfes;                                                           
6.1.3     The conclusion of a lease agreement between Rolfes Chemicals and  
              Triangle Solvents in respect of the property from which Triangle  
              Solvents operates;                                                
    6.1.4     The approval of the transaction by the Competition Authorities;   
and                                                               
    6.1.5     Approval by the JSE Limited ("JSE"), where relevant.              
6.2  In the event that the suspensive conditions are not fulfilled by 30        
    November 2008, Rolfes Chemicals will have the right to extend the date by a 
further sixty days through written notice to the Seller.                    
7.   Unaudited pro forma Financial effects of the Transaction                   
7.1  The unaudited pro forma financial effects on Rolfes and its subsidiaries   
    before and after the transaction, set out in the table below, are the       
responsibility of the company`s directors and have been prepared for        
    illustrative purposes only to show how the transaction may have affected    
    Rolfes results for the 12 month period ended 30 June 2008, based on the     
    assumptions that:                                                           
7.1.1     for the purpose of calculating earnings per share (basic and      
              diluted) and headline earnings per share (basic and diluted), the 
              transaction was effected on 1 July 2007; and                      
    7.1.2     for the purpose of calculating net asset value and net tangible   
asset value per ordinary share, the transaction was effected on   
              30 June 2008.                                                     
    Due to their nature, the unaudited pro forma financial effects may not      
    fairly reflect Rolfes financial performance and position after the          
transaction.                                                                
    It should be noted that as the purchase consideration is based on Triangle  
    Solvent`s future expected profits (and not historic profits), the unaudited 
    pro forma financial effects using Triangle Solvent`s historic earnings to   
February 2008 illustrate a dilutive effect on earnings per share (basic and 
    diluted) and headline earnings per share (basic and diluted) which in       
    management`s view is unlikely.                                              
7.2  The unaudited pro forma financial effects of the Transaction on the        
earnings per share (basic and diluted), headline earnings per share (basic  
    and diluted), net asset value and net tangible asset value per share of     
    Rolfes, are as follows:                                                     
                           Notes    Before   After     %                        
(cents)  (cents)   change                   
     Earnings  per  share  1 and 2  28,8     27,5      -4,5                     
     (basic and diluted)                                                        
     Headline    earnings  1 and 2  29,2     27,9      -4,5                     
per share (basic and                                                       
     diluted)                                                                   
     Net  asset value per  3 and 4  109,1    109,1     0,0                      
     share                                                                      
Net  tangible  asset  3 and 4  95,4     80,7      -15,4                    
     value per share                                                            
Notes:                                                                          
    1.   The earnings per share and headline earnings per share in the before   
column are extracted from the annual report of Rolfes for the          
         financial year ended 30 June 2008 which was based on 103 102 744       
         weighted average number of ordinary shares and fully diluted number of 
         ordinary shares in issue.                                              
2.   The financial effects of the Transaction on the earnings per share and 
         headline earnings per share have been calculated on the basis of a R50 
         million purchase consideration taking into account the IFRS 3          
         requirements relating to deemed interest and the present value of the  
best estimate of the Purchase Consideration, and assuming 103 102 744  
         weighted average number of ordinary shares and fully diluted number of 
         ordinary shares in issue. The income statement used in respect of      
         Triangle Solvents in calculating these financial effects was extracted 
from their audited annual financial statements for the period ended 29 
         February 2008. In calculating the interest payable on the debt to      
         finance the Purchase Consideration of R50 million, a prime rate of     
         15,5% before taxation has been assumed.                                
3.   The net asset value per share and net tangible asset value per share   
         in the before column are extracted from the annual report of Rolfes    
         for the financial year ended 30 June 2008 which was based on 103 609   
         467 ordinary shares in issue.                                          
4.   The financial effects of the Transaction on the net asset value per    
         share and net tangible asset value per share have been calculated on   
         the basis of a R50 million purchase consideration taking into account  
         the IFRS 3 requirements relating to deemed interest and the present    
value of the best estimate of the Purchase Consideration, and assuming 
         103 102 467 ordinary shares in issue. The balance sheet used in        
         respect of Triangle Solvents in calculating these financial effects    
         was extracted from the unaudited effective date management accounts as 
at 30 June 2008 attached as an appendix to the Sale of Shares          
         Agreement. Fair value adjustments pertaining to property, plant and    
         equipment were made to these effective date management accounts.       
         Goodwill is allocated in individual cash-generating units based on     
business activity. Impairment testing is done on a regular basis by    
         comparing the net carrying value of the cash-generating units to the   
         estimated value in use.  As a result of the transaction, R15.2 million 
         will be classified as goodwill as stated above and R8.7 million will   
be classified as a financial asset in terms of IFRS 3.                 
8.   JSE requirements                                                           
    The Transaction is categorised as a category 2 transaction in terms of the  
    JSE rules and regulations and therefore no shareholder approval is          
required. As a result of Triangle Solutions becoming a subsidiary of        
    Rolfes, the articles of association of Triangle Solutions will be amended   
    to conform to schedule 10 of the JSE`s Listings Requirements and such will  
    be confirmed to the JSE in writing.                                         
9.   Withdrawal of cautionary announcement                                      
    As a result of the signature of the final agreement in respect of the       
    Transaction, the cautionary announcement published on SENS on Thursday, 2   
    October 2008, is hereby withdrawn.                                          
Johannesburg                                                                    
30 October 2008                                                                 
Designated adviser   PSG Capital (Pty) Ltd                                      
Date: 30/10/2008 12:00:04 Supplied by www.sharenet.co.za                     
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information disseminated through SENS.                                          



                                        
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